International Communique No. 305 – 7th September 2021


The highly awaited US job figures was released last week. Currently, equity indices are hovering around record highs, powered ahead by unconditional support from central banks. For instance, the S&P 500 is riding on its seventh consecutive month of gains, but economic growth has seemingly peaked. The pace is expected to slow this autumn as consumer spending wilts in the face of delta-related fears.

In the US, the latest employment report yielded job creation well below expectations, with 235,000 jobs added compared with the 750,000 expected. This shows the jobs recovery slowing sharply amid labour shortages and dwindling demand in the services sector linked to resumption of the pandemic. Most of the occupations that are supposedly the focal point of the jobs rush stemming from the reopening of the economy are at a standstill. The leisure and hotel sectors did not create any jobs at all.

Jerome Powell left the door open to tapering (i.e. reductions in asset purchase flows) between now and the end of the year. Yet the Fed chief was also careful to point out that a reduction in asset purchases would not mean that the rate lift-off is around the corner. Now the Fed will have to contend with both the labour market slowdown and converging inflation signals, including the stronger-than-expected rise in wages. The average hourly wage has risen by 0.6% month-on-month and 4.3% year-on-year.

Angst about tapering news will intensify in the run-up to the next Federal Reserve later this month.

In Europe, private-sector business activity remained strong in August, suggesting that the euro area could revert to its pre-pandemic track by the end of the year. Christine Lagarde has also started a communication campaign to prepare investors for a gradual reduction in the ECB’s monetary support. The European Central Bank will meet on 8 and 9 September and could even then announce a curtailment of its pandemic emergency purchase programme (PEPP). But this is unlikely to mark the end of asset purchases, as its scheme focusing on public debt remains in place and is expected to feature prominently between now and March 2022. Hence the transition should be smooth.

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